Welcome to Armchair Economics 101.
Now, I'll admit that I'm not an economist. I'm not even an economics student, though I hope to have a second life as a Finance major. Of course, finance and economics are nearly as far from one another as two studies about money can be, but I digress.
It seems to me that an awful lot is being made of the bailout. I'm not sure what to believe at this point. Is it the mortages? Is it the credit crunch? Is it Credit Swaps? Is it China knocking on the door? Is it an attempt to cover bad assets so that they'll be liquid enough to purchase our 2009 deficit? If anyone has the exact answer to that question, they aren't telling us. So, here is MY plan for America:
- Honestly, the current bailout plan seems like a giant heist. It seems to be an excuse to capitalize stronger banks so they can buy off ones that wouldn't be saved even by this issue, and then to further offload their acquired debt onto the American taxpayer. Basically, we're becoming the largest private equity firm in America, without the equity part! In my scheme, banks that will fail will fail, banks that will succeed will succeed, but they have to do so on their own merit. They won't be able to grab it all up and hoist the risk to us for nothing, but they'll survive and be stronger.
- Mortgages: The FHA is funded and authorized to guarantee any active mortgage that is in danger of default which is refinanced from an interest only to a fixed interest loan. The loan must be refinanced at CURRENT MARKET VALUE, and the rate must be a low rate dictated by the plan (5% sounds reasonable). The banks may then apply for a credit for the remaining real value of the loan to recover either part or all of the remainder. This could either be done on a fixed basis (50% of lost real value), variable based on dollar amount (100% up to $100k, then 50% of remainder), or based on a number of tiered options (50% for direct cash injection, or 100% in bank promissary, net worth certificates, or equity). The forgiven debt in these mortgages would be exempt from IRS rules that count the forgiven debt as income.
- Small Businesses: The government, through the SBA, would oversee lending directly to small businesses. Their funding would be increased and "quick loans" would be available to businesses as part of packages to allow small businesses to cover payroll. Interest rates would be dictated by market rates, or possibly set temporarily to the federal discount window.
The purpose of my plan is:
- To prevent funding of banks. For these institutions, let the market run it's course.
- To provide immediate debt relief and restore some equity to struggling families.
- To provide small businesses with the capability to receive credit, while allowing the government to benefit directly through loan interest, and preventing payroll issues that would cause businesses to shed employees.